ISSUE

May a judge leave accumulated funds in a 401(k) Plan (the Plan) with his or her former law firm where the judge creates a self-directed sub-account for which the judge pays all management fees and into which the firm makes no further contributions on the judge's behalf and where custodial, fiduciary and administrative functions associated with the Plan will be handled by an independent, nationally recognized investment firm and, further, where the financial future of the former law firm will have no impact on the judge's sub-account in the Plan?

ANSWER: Yes, but with disclosure in certain instances.

FACTS

A judge has accumulated funds in the Plan with the judge's former law firm. Although, for ERISA purposes, the law firm is the Plan Administrator, custodial, fiduciary and administrative functions associated with the Plan will be handled by an independent, nationally recognized investment firm. The former law firm will pay no fees on behalf of the judge under the new arrangement. The judge will have a separate sub-account in the Plan that is 100% vested. All fees and charges related to the judge's sub-account will be paid out of the sub-account and the judge will have the ability to self-direct investments within the sub-account. The law firm will select a menu of investment options available to all participants in the Plan but the judge will have the ability to self-direct investments within the sub-account free from any control or influence by the law firm. The judge will also have the ability to select investments not on the Plan's menu of options. The former law firm makes no further contributions to the Plan on the judge's behalf and the future financial performance of the former law firm will have no impact on the Plan.

DISCUSSION

The Canons of Judicial Conduct relevant to the issue provide in pertinent part as follows:

Canon 2. "A judge shall avoid . . . the appearance of impropriety in all of the judge's activities"

Canon 2A. "A judge. . . shall act at all times in a manner that promotes public confidence in the . . . impartiality of the judiciary"

The Commentary to Canon 2A states: "The test for appearance of impropriety is whether the conduct would create in reasonableminds a perception that the judge's ability to carry out judicial responsibilities with integrity and impartiality is impaired." (emphasis added).

Canon 3E(1). "A judge shall disqualify himself or herself in a proceeding in which the judge's impartiality might reasonably be questioned,. . . ."

The Commentary to Canon 3E(1) states, in part: "A judge should disclose information that the judge believes the parties or their lawyers might consider relevant to the question of disqualification, even if the judge believes there is no real basis for disqualification."

Canon 4.

D. Financial Activities.

(1) A judge shall not engage in financial and business dealings that:

(b) Involve the judge in frequent transactions or continuing business relationships with those lawyers. . . likely to come before the court on which the judge serves.

The Commentary to this Canon section provides, in part: "This rule is necessary to avoid creating an appearance of exploitation of office or favoritism and to minimize the potential for disqualification."

Canon 4.

D. Financial Activities

"(4) A judge shall manage the judge's investments and other financial interests to minimize the number of cases in which the judge is disqualified. As soon as the judge can do so without serious financial detriment, the judge shall divest himself or herself of investments and other financial interests that might require frequent disqualification."

The proliferation of law firm tax-deferred retirement plans presents the ethical issues of the appearance of impropriety and disqualification following disengagement by a judge from his or her former law firm where the judge remains, in some degree, a participant in a retirement plan maintained by the law firm.

The starting point for consideration of the inquiry is the admonition in Canon 2 that a judge shall avoid the appearance of impropriety and act at all times in a manner that promotes public confidence in the integrity and impartiality of the judiciary. As noted above, the Commentary to Canon 2 sets forth the test for the appearance of impropriety, that is, whether the conduct would create in reasonableminds a perception that the judge's ability to carry out judicial responsibilities with integrity and impartiality is impaired. The Commentary describes an objective test for the appearance of impropriety and the committee is of the opinion that, under the facts presented, continued participation by the judge in the Plan does not violate Canon 2.

Although the judge may remain a participant in the Plan, questions arise regarding disqualification and the duty of disclosure when members of the judge's former law firm appear before the judge. With respect to disqualification, Canon 3E(1) requires the judge to disqualify himself or herself in a proceeding in which the judge's impartiality might reasonably be questioned. (emphasis added). This section of the Canon lists certain specific instances, which are not exclusive, where the judge is required to disqualify himself or herself. None of these specific instances applies to the present inquiry. The Commentary to Canon 3E(1) contains clarifying language that a judge is disqualified " ... whenever the judge's impartiality might reasonably be questioned, regardless whether any of the specific rules in Section 3E(1) apply." (emphasis added). In the view of the committee, participation by the judge in the Plan under the facts presented does not, in and of itself, require disqualification under Canon 3E(1). In construing language similar to Canon 3E(1), and on similar facts, the Alabama Judicial Inquiry Commission reached the same result. Alabama Advisory Opinion 91-417(April 30, 1991). (judge may leave accumulated funds in the retirement plan set up by the judge's old law firm if the judge sets up a sub-account for which he or she pays the management fee and into which the firm makes no further contributions on the judge's behalf).1

With respect to the duty of disclosure, however, the Commentary to Canon 3E(1) further states that ". . . [a] judge should disclose information that the judge believes the parties or their lawyers might consider relevant to the question of disqualification, even if the judge believes there is no real basis for disqualification." Although participation by the judge in the Plan, without more, does not require a perse recusal, the committee does conclude that the judge should disclose to counsel and to the parties the judge's participation in the Plan when members of the judge's former law firm appear before the judge. This disclosure should assuage any doubt in most cases regarding the judge's ability to be impartial. A party or counsel learning of the participation in the Plan directly from the judge is far less likely to question the judge's impartiality than one who learns about it later from another source.2

The committee also considered Canon 4D(1)(b) which precludes a judge from engaging in financial and business dealings that ". . . [i]nvolve the judge in frequent transactions or continuing business relationships with those lawyers. . . likely to come before the court on which the judge serves." The Commentary to this Canon section states that the rule is necessary to avoid creating an appearance of exploitation of office or favoritism and to minimize the potential for disqualification. Under the facts presented, participation by the judge in the Plan will not, in the committee's view, result in any significant, ongoing transactions or business relationships with members of the judge's former law firm that relate to participation in the Plan. The Preamble to the Canons of Judicial Conduct states that the ". . . Canons and Sections are rules of reason." The committee believes that any transactions or business relationships with the judge's former law firm because of the Plan will be de minimis and will not violate this section of the Canons.

Finally, the committee considered the impact of Canon 4D(4) requiring the judge to divest himself or herself of investments and other financial interests that might require frequent disqualification. Since, under the facts presented, the committee does not believe participation in the Plan by the judge will require disqualification solely because of that participation, the judge will be in compliance with this section of the Canons.

It should be pointed out that the degree of participation by a judge in a retirement plan maintained with his or her former law firm may vary and the facts and circumstances in each case should be reviewed for compliance with the Canons.

1Butsee, U.S. Compendium of Selected Opinions §2.7(f)(1995)(Because of an appearance of impropriety, a judge should recuse in all cases involving members of the former law firm where the judge has left a retirement account in the former law firm's profit sharing trust). Seealso U.S. Compendium of Selected Opinions §5.2-4(a)(judge should remove his or her retirement account from former law firm's profit-sharing trust where members of former law firm appear regularly in federal court in the judge's district requiring frequent disqualification by the judge).

2See California Judges Association, Committee on Judicial Ethics, Opinion No. 45 (1997) (judge not required to recuse when judge's former firm appears even though judge retains an interest in the firm's pension plan where assets of the plan fluctuate daily and judge has neither knowledge of or management authority over plan's assets. Moreover, judge need not disclose continuing interest in the pension plan but must disclose his or her prior relationship with former firm). Accord Georgia Advisory Opinion 221 (1997).

All opinions shall be advisory only, and no opinion shall be binding on the Judicial Inquiry Review Commission or the Supreme Court in the exercise of its judicial discipline responsibilities. However, the Judicial Inquiry Review Commission and the Supreme Court may in their discretion consider compliance with an advisory opinion by the requesting individual to be evidence of a good faith effort to comply with the Canons of Judicial Conduct provided that compliance with an opinion issued to one judge shall not be considered evidence of good faith of another judge unless the underlying facts are substantially the same. Order of the Supreme Court of Virginia entered January 5, 1999